Whether you're new to insurance or just need a refresher, these 25 basic insurance terms are essential
Have you ever found yourself in the middle of reading a paragraph only to realize you only understand every other word? It happens to the best of us, especially when we're talking about a complicated subject like insurance. Fortunately, you don't have to know every insurance term to stay informed. Before you dust off that heavy dictionary, check out our list of 25 basic insurance terms everyone should know!
Why is it important to know these insurance terms?
Most subjects, like sports or cooking, have jargon that can take years to fully memorize and understand, and insurance is no exception. But when we're talking about insurance, the stakes are often much higher than discussions revolving around hobbies; we're talking about protecting our property and our lives. That's why it's essential to have an understanding of what these terms refer to in the context of insurance.
Common insurance terms and definitions
1. Actual cash value.
There are a few ways your policy can be set up that impact the amount you are paid when filing a claim. Actual cash value is one such method, and it is calculated by subtracting the amount of depreciation from the initial cost of the property. Depreciation is usually calculated by subtracting a certain percentage from the property per year. However, not every insurance company calculates depreciation the same.
In most cases, actual cash value coverage is a less-expensive insurance option. Another (often more expensive) alternative is called "replacement cost coverage," which we will cover later on.
Sometimes referred to as a 'claim examiner,' an adjuster
is someone who investigates a claim. They determine if the loss is covered by the policy, estimate damages, and often write a check to the insured.
An agent, or insurance agent
, is someone who sells insurance policies for an insurance company or carrier. Their agency may be exclusive or non-exclusive, meaning they sell insurance for a single carrier, or a number of carriers.
This is an individual who has an insurance policy, and is another word for "insured" or "policyholder."
In a situation such as an auto accident, "at-fault" refers to the person who is liable for the damages. In other words, this is the person who caused the accident, or is otherwise legally responsible for it.
6. Bodily injury.
As the name suggests, this simply refers to an injury a person sustains. In an auto accident, bodily injury liability coverage is designed to pay for the expenses that result from such an injury.
This is another word for the insurance company
that provides you with your policy.
8. Claim. A claim
refers to any request for payment within the bounds of an insurance policy. For example, if you have homeowners insurance, and hail damages your roof
, you would file a claim, requesting that your insurance carrier investigate and issue a payment if needed.
A claimant is any person or entity requesting payment from an insurer, or insurance company.
Coverage, or coverages, are the specific protections or benefits an insurance policy provides. These are outlined in your policy or contract, and can be found on your declarations page.
This term refers to any loss, destruction, or harm to a person or property, such as a vehicle or home. For example, if your vehicle's windows are broken by an attempted theft
, this would be considered "damage."
Not to be confused with "damage," this refers to the actual money one individual or party is required legally to pay to another.
13. Declarations page.
This page is basically a snapshot of the important information regarding your insurance policy. It will have policyholder information, such as name, address, and policy number, as well as coverages, limits, premiums, deductibles, and dates of coverage.
. A deductible refers to the amount of money that you, the insured, are required to pay before the insurance company takes over. For example, if you have a $500 deductible on your auto insurance policy
, and you're involved in an accident that results in $5000 in damages, you would pay $500 and the policy would pay the $4500 (or up to the limit of the policy).
15. Electronic Funds Transfer (EFT).
This is a method of payment where the insurance company electronically deposits the claim amount into your bank account. While many claims adjusters are able to write checks on site, there are a variety scenarios where this may be possible. For example, if the claims process takes place using a mobile app
(as opposed to an in person inspection), you may be able to have funds deposited directly via EFT.
EFT may also refer to a method by which a policyholder can pay premiums electronically, sometimes through automatic deductions.
This refers to the amount of money required to repair or replace the covered property when damaged. This is usually provided by the claims adjuster following their inspection and evaluation.
This refers to the person(s) (or sometimes organization or entity) that an insurance policy provides coverage for. For example, if you have an auto insurance policy, you are considered to be the insured in that contract.
An insurer is the company or organization that provides insurance policies to the insured. This is another word for an insurance company, like the term "carrier."
This refers to a legal obligation or responsibility one party has for causing damage, injury, or loss to another party. For example, if you rear-end another car, and the driver and passengers are injured, you may be held liable for the damaged property and persons. In such a case, the "liability coverage" portion of your auto insurance
would potentially pay for the damages up to the policy limit.
A limit refers to the maximum amount of protection the insurance company agrees to pay for a specific coverage in any given claim. This amount is agreed upon before the policy is issued, and can be found on your policy declaration page.
As an example, your auto insurance policy may have a limit of $60,000 per accident. This means that insurance company would pay up to that limit, after which the policyholder is responsible for paying any expenses accrued beyond that limit.
In the context of insurance, "loss" refers to damage caused to an insured piece of property. A "covered loss" refers to any damage or injury that an insurance policy specifically provides protection for. For example, hail damage is a common covered loss for many homeowners insurance policies
, whereas flood damage is typically not a covered loss for many homeowners policies.
22. Named insured.
Like the term "insured," this term refers to a named individual or entity that an insurance policy covers, and is the person or organization listed on the declaration page. However, there are circumstances where the two can differ. For example, if a company has general liability insurance, that company would be the "named insured" as listed on the declaration page. Its employees would technically be insured under that policy, but only while they are performing their duties as an employee. In other words, they are insured, but not the "named insured."
This is yet another term you might frequently hear or see that refers to the person or entity an insurance policy covers, like "insured," and would appear on the declarations page.
This is the amount of money you, the insured, pay to an insurance company in exchange for coverage. Depending on the policy, the premium can be paid a variety of ways, such as monthly payments, or possibly in a single upfront payment. The premium amount is determined by a variety of different factors, and will be different depending on the type of policy, the individual or entity, deductibles, limits, and so on.
25. Replacement cost coverage.
As opposed to the actual cash value, replacement cost refers to the cost of replacing property without subtracting depreciation due to normal use or wear and tear. For example, if you have boat insurance
, replacement cost coverage would pay to replace that boat with an identical model, or a model of comparable quality.
While there are many more insurance terms than the ones outlined here, these are some of the more common definitions that can help you get on the right track. But this isn't a test, so don't worry if you haven't memorized them all!
After you've gone through this list, consider adding this blog to your internet browser's bookmarks (here's a quick tutorial for creating bookmarks)
! Then, the next time you're speaking to an agent, filing a claim, or simply looking through your policy, you can quickly reference these terms.
When you’re filing a claim, great customer service is essential. Since 1896, Germania Insurance has been the Insurance Texans Trust for great coverage and outstanding customer service. But don’t take our word for it! Hear what our customers have to say.
For more information about our insurance products, request a free quote online, or reach out to one of our trusted agents today!
Did you know that dryer fires are one of the most common causes of house fires? Check out our blog to learn how you can take steps to prevent them